Best stock investment strategies

To be successful in investing in stocks, you need to make a thorough analysis of the market and use several radically different approaches to investing. The goal was developed by paydayloancomparison.org – to buy stocks that are well below their real value. In doing so, one should not only consider successful and well-known companies with stable profitability. But also those whose financial potential is not so evident.

The cost method of investing

The stock market is full of companies which are either undervalued or overvalued. For a successful investment, a clear distinction must be made between ‘price’ and ‘value’. Undervalued stocks have an undervalued market price that does not correspond to the real value of the securities.

A value investor tracks the movements of undervalued stocks on the stock market. A purchase should be made when such securities are revalued and the actual value equals the market price.

The stock market is constantly changing and it is not uncommon for stocks of stable corporations to fall below their actual value. It is at times like this that one should buy securities. But to avoid miscalculation, careful analysis should be done.

The principles of value investing:
(1) Shares in promising companies are those securities whose price is higher than their book value. The P/B ratio is less than or equal to 1.5.

2. Only invest into shares of those companies which have been in the market for at least 5 years, have stable profitability with further promising positive dynamics.
3. A corporation’s equity to debt ratio of less than or equal to 0.5. With continued government financial support, the ratio can be somewhat higher.
4. The price of the company’s securities should be less than or equal to 70% of their estimated value.
5. Reduction in the price of securities should be caused only by factors of the external economy, not affecting the profitability of the corporation.

It is best to purchase securities in times of crisis.
Buying shares is only advisable if there is a sufficient margin of safety.

Value investing is the most conservative and correct way to invest in securities. This method has a minimal risk of loss for the investor. However, it is not suitable for quick profits because of its long-term nature.

If invested correctly, you can guarantee a solid income with minimal financial costs and losses.

Buying heavyweight shares

This strategy is based on the purchase of securities of companies with the largest market capitalisation. As the index rises, the assets of such corporations increase and they remain stable in a fast-moving market.

Buying shares at a discount

This strategy is often referred to as the Benjamin Graham strategy. Thanks to him, the concept of NCAV investing – current assets minus liabilities – was born. The method consists of ignoring certain income items in current assets, which can be completely eliminated during a crisis.

The essence of this strategy is to look for securities whose market value is lower than NCAV while still having a sufficient margin of safety. Most often these are stocks of large but unpopular corporations.

Forward and backward strategy

The forward strategy – companies which performed well more than 5 years ago are considered the most attractive investments. The trend should continue and shareholder value should increase.
Reverse strategy – invest in securities of companies that have not performed well in the past. But they have some future prospects.

Recovery stocks

The strategy is based on an analysis called F-valuation.
The criteria of the analysis are:

• profitability;
• liquidity;
• sources of financial flows;
• leverage.

Companies whose shares are undervalued relative to their book value should be analysed.

Value in motion

The objective is to find undervalued companies which are at the initial point of market recognition.
Main criteria of price vs:

• book value;
• cash flow;;
• profit;
• sales.

Only those corporations with clear signs of movement, especially in price momentum, should be analysed.

The magic formula

This is one of Greenblatt’s popular strategies. It is based on buying a profitable business for little money. Only successful companies which will attract many investors in the long run should be analysed.
To find such companies you need to:

• Examine the shares of large corporations that are on the secondary market;
• Pick corporations with ROA’s greater than 25%;
• Analyze the ratio of highest ROA to lowest P/E or EPS;
• exclude banks, utilities, insurance companies and corporations with low P/E;
• invest in the remaining companies, select up to 30 stocks.

The strategy works over a period of 5-10 years.

Quality investment at a favourable price

The targets are market monopolists which offer competitive and consumer-friendly pricing. These companies have stable profits and solid margins. You can only buy the securities of such corporations at a price which is lower than the intrinsic value.

Buying shares based on the Dow Jones Index

You have to pick the 10 companies which have the highest dividend yield. Their price is often lower than similar components of the Dow Jones Index. Such securities will show high growth dynamics in the future. Stocks should be checked every year for relevance, as this type of security is constantly changing.